Getco to Buy Knight Capital in $1.4 Bln Deal

Knight Capital Group Inc, which
was nearly brought down by a trading error in August, said it
will be acquired by rival electronic trading firm Getco Holdings
Co in a cash-and-stock deal that the companies valued at $1.4
billion.

Knight Capital Group Inc, which
was nearly brought down by a trading error in August, said it
will be acquired by rival electronic trading firm Getco Holdings
Co in a cash-and-stock deal that the companies valued at $1.4
billion.

The offer represents a 13-percent premium to Knight's
closing stock price of $3.33 on Tuesday. It's also a 51-percent
premium to Knight's closing price on Nov. 23, when reports
surfaced that the company was looking for buyers.

The announcement comes in the wake of competing offers from
Virtu Financial LLC and Getco, both of which have market-making
units that compete with Knight. Knight executes about 10 percent
of U.S. equity trading volume.

Under the new deal, Knight and Getco will combine into a new
publicly traded company. Knight shareholders other than Getco
will have the right to pick either $3.75 per share in cash or
one share of common stock in the new business.

"The transaction provides near-term certainty in the form of
cash," Knight Chief Executive Thomas Joyce said in a statement.

Daniel Coleman, Getco's chief executive, will be CEO of the
new company and Knight's Joyce will be executive chairman of the
board of directors, according to the statement. The deal is
expected to close in the second quarter of 2013.

The new board will have nine members, with five from Getco
and four from Knight.

Knight was rescued this summer by a group of investors that
included Chicago-based Getco and was led by Jefferies Group Inc
. The group injected $400 million into Knight after
errant software sent millions of unintentional orders in the
opening 45 minutes of the U.S. trading day on Aug. 1.

Knight investors with the Jefferies and Getco group have
agreed to limit the cash they take to 50 percent of their
Knight shares so that other stockholders can receive up to $720
million in cash, according to the statement. If requests for
cash top $720 million, they will be pro-rated.

The stock to be paid will be issued by the company formed
from Getco and Knight.

Getco had made an unsolicited bid for Knight in late
November, which was followed by an unsolicited bid from Virtu.
By Tuesday, Getco had increased the cash portion of its offer
and valued its bid at $3.60 a share while Virtu had boosted its
all-cash offer to $3.20 a share, sources said.

Apart from Getco, the summer rescue group led by Jefferies
included Blackstone Group LP, TD Ameritrade Holding Corp
, Stifel Financial, and Stephens Inc.

Getco investor General Atlantic, as well as Blackstone and
TD Ameritrade, were given seats on Knight's board as part of the
rescue.

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